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The information value of online social networks: Lessons from peer-to-peer lending

Seth Freedman () and Ginger Zhe Jin

International Journal of Industrial Organization, 2017, vol. 51, issue C, 185-222

Abstract: We examine whether social networks facilitate online markets using data from a leading peer-to-peer lending website. We find that borrowers with social ties are consistently more likely to have their loans funded and receive lower interest rates; however, most borrowers with social ties are more likely to pay late or default. We provide evidence that these findings are driven by lenders not fully understanding the relationship between social ties and unobserved borrower quality. Overall, our findings suggest caution for using online social networks as a signal of quality in anonymous transactions.

Keywords: Peer-to-peer lending; Social network; Information; Quality; Ecommerce (search for similar items in EconPapers)
JEL-codes: D82 L14 G1 (search for similar items in EconPapers)
Date: 2017
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Working Paper: The Information Value of Online Social Networks: Lessons from Peer-to-Peer Lending (2014) Downloads
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Handle: RePEc:eee:indorg:v:51:y:2017:i:c:p:185-222